Why your home might sell for less

Associated Press / WSJ ^ | 11-06-03

[Brian S]

Higher mortgage rates don't just take the fun out of refinancing. They could also reduce home prices in some parts of the country.

As interest rates rise from the summer's lows, that is one of the bigger risks in the economy for Americans whose best-performing asset over the past few years has been their home. But it would be a mixed blessing for buyers already priced out of many market. They might pay less for the house but would face higher borrowing costs. A 25-city analysis by Fidelity National Financial Inc., a real-estate services provider, shows that rising rates will have a sharply different impact on various regions of the country. The study, conducted at the request of The Wall Street Journal, found that many of the markets that have seen the sharpest appreciation now stand to be the hardest hit.

[Izzy Dunne]

Coastal markets also tend to be more sensitive to rising rates because the homes cost so much. In Los Angeles, where the median home price is $315,000, the monthly payment on a 30-year mortgage jumps by $423 if rates rise to 8 percent from 6 percent. In St. Louis, where the typical home goes for $117,000, that rise in rates would boost the monthly mortgage payment by just $157.

315000 / 117000 = 2.6923

423 / 157 = 2.6943

Somebody 'splain to me how a home costing three times as much and having a payment increase of three times as much means that "Coastal markets also tend to be more sensitive to rising rates because the homes cost so much."

[Stingray51]

I guess it is similar to how the media always portrays the rich as benefiting the most from tax cuts.

[razorback-bert]

Million Man Math

[Geritol]

Hmmm... I always thought it would be because of the holes in the walls and the rundown state of all the appliances....

[stainlessbanner]

The author has successfully demonstrated that she can derive monthly payments, i-rates, and NPV given variables.

[Mr. Jeeves]

Because people use more ridiculous financing instruments (ARM's, balloon payments, etc.) in order to squeeze into those overpriced coastal houses that they can't really afford. A rate increase won't affect an existing standard mortgage, but people using some of these wacky, DiTech-type instruments could get crushed.

Granted, the article's example doesn't illustrate the point properly.

[Starwind]

Earlier news...

and another link to the same article run in the Naples, Fl Daily

Why your home might sell for less